IBM 2007 Annual Report Download - page 93

91
Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
Accumulated Derivative Gains or Losses
At December 31, 2007, in connection with its cash flow hedges of
anticipated royalties and cost transactions, the company recorded net
losses of $136 million, net of tax, in Accumulated gains and (losses)
not affecting retained earnings. Of this amount, $174 million of losses
are expected to be reclassified to Net income within the next year,
providing an offsetting economic impact against the underlying
anticipated transactions. At December 31, 2007, losses of approxi-
mately $91 million, net of tax, were recorded in Accumulated gains
and (losses) not affecting retained earnings in connection with cash
flow hedges of the company’s borrowings. Of this amount, $67 mil-
lion of losses are expected to be reclassified to Net income within
the next year, providing an offsetting economic impact against the
underlying transactions.
The following table summarizes activity in the Accumulated gains
and (losses) not affecting retained earnings section of the Consolidated
Statement of Stockholders’ Equity related to all derivatives classified
as cash flow hedges:
($ in millions, net of tax)
D EBIT/(CREDIT)
December 31, 2004 $ 653
Net losses reclassified into earnings from
equity during 2005
(104)
Changes in fair value of derivatives in 2005 (787)
December 31, 2005 (238)
Net gains reclassified into earnings from
equity during 2006
205
Changes in fair value of derivatives in 2006 138
December 31, 2006 104
Net losses reclassified into earnings from
equity during 2007
(116)
Changes in fair value of derivatives in 2007 239
December 31, 2007 $ 227
For the years ending December 31, 2007, 2006 and 2005, there were
no significant gains or losses recognized in earnings representing
hedge ineffectiveness or excluded from the assessment of hedge
effectiveness (for fair value hedges and cash flow hedges), or associ-
ated with an underlying exposure that did not or was not expected to
occur (for cash flow hedges); nor are there any anticipated in the
normal course of business.
Note L. Other Liabilities
($ in millions)
AT DECEMBER 31: 2007 2006*
Deferred taxes $1,064 $ 665
Income tax reserves** 2,107 —
Executive compensation accruals 1,058 934
Restructuring actions 631 640
Workforce reductions 476 435
Disability benefits 734 626
Derivatives liabilities 534 235
Asset retirement obligations 114 106
Noncurrent warranty accruals 157 176
Environmental accruals 231 221
Other 864 764
Total $7,970 $4,801
* Reclassified to conform with 2007 presentation as the Deferred income category is now
displayed as a separate line on the Consolidated Statement of Financial Position. Also,
Asset retirement obligations is a separate category in 2007 and the 2006 Other category
has been adjusted accordingly.
** Income tax reserve amounts classified as noncurrent as a result of 2007 implementation
of FIN 48. See note O, “Taxes,” on pages 97 to 99 for additional information.
In response to changing business needs, the company periodically
takes workforce reduction actions to improve productivity, cost com-
petitiveness and to rebalance skills. The noncurrent contractually
obligated future payments associated with these activities are reflected
in the Workforce reductions caption in the previous table.
In addition, the company executed certain special actions as
follows: (1) the second quarter of 2005 (discussed in note Q, “2005
Actions,” on pages 99 and 100), (2) the second quarter of 2002 asso-
ciated with the Microelectronics Division and rebalancing of both
the company’s workforce and leased space resources, (3) the fourth
quarter of 2002 associated with the acquisition of the Pricewaterhouse-
Coopers consulting business, (4) the 2002 actions associated with the
HDD business for reductions in workforce, manufacturing capacity
and space, (5) the actions taken in 1999, and (6) the actions that were
executed prior to 1994.